What is MIPS system image in Android SDK manager?

What is it?

It is an emulator image that emulates a device that has a MIPS CPU, instead of an ARM or x86 CPU.

What does it do and when will someone use it?

You will use it if you wish to emulate a device that has a MIPS CPU, instead of an ARM or x86 CPU.

What will happen if I do not install it?

You will not be able to emulate a device that has a MIPS CPU, instead of an ARM or x86 CPU. The MIPS Consortium may cry. But, considering right now there are very few Android devices with MIPS CPUs on the market, not having a MIPS emulator is probably just fine.

More info on the MIPS architecture can be found here: http://www.mips.com/

According to my understanding you need the system images for MIPS and x86 only to test native code, which was developed using the "Native Development Kit" (NDK).

The x86-image can be executed with higher performance, if your CPU is offering virtualization support (e.g., Intel's VTx; AMD-V only for Linux), see this section in the official documentation. According to this discussion the emulator will write "HAX is working and emulator runs in fast virt mode" to the console if he uses the CPU's virtualization support.

However, if the emulator is running too fast, then the developer might forget that the app will also have to run with sufficient performance on a mobile device with limited resources ...

Strangely enough, updating MIPS System Image solved a build problem that I was having. After updating all components except for the MIPS System Image, all my projects failed to build with errors saying "R cannot be resolved to a variable". After updating MIPS System Image, everything builds well.